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  • US Steel: Subject To Market Despite Carnegie Project Improvements [View article]
    Dear VI: Pretty analysis, ugly subject matter.

    No wish to denigrate the progress being made at X, but structural cost cutting stories are pretty old hat for the U.S. integrated steel biz. Chasing the cost curve at X, MT, AKS is pretty much what most of the employees do all of the time. Hardly an rationale for investment.

    Let's just all admit to it: This industry hasn't returned its full absorbed costs (OPEX + DD&A) for many years. Investment in this space is tossing $ in the street IMHO. Far better to adopt the ArcelorMittal strategy of deftly buying existing facilities (Thyssen Alabama being the latest), manage them for cash, and harvest the weaker assets in their fleet.
    Jan 28 05:12 PM | Likes Like |Link to Comment
  • US Steel - Should You Buy Now, Or Wait? [View article]
    IMHO, steel stocks, esp. Integrated steel stocks are just a proxy for the underlying commodity Hot Band (hot Rolodex steel sheet). Per the latest edition of AIST (Jan 2014 ed., p. 16), flat rolled capacity utilization is >90%. U.S. Hot rolled sheet is firm and increasing. All of the integrated sheet producers X, AKS, MT have very bullish charts. Regress stock prices against hot band prices and you'll see what I mean.

    Your thought on normalizing earnings and PE's over a 10 year cycle is a good thought as it dials out the hyper cyclical nature of this industry, as it starts to look at anomalous pricing vs. the underlying commodity. I used to do that, but it's too much work. These days, I just watch capacity utilization and the stock chart.

    Presently long X.
    Jan 6 10:34 AM | 3 Likes Like |Link to Comment
  • SandRidge Energy: Dead Money Walking ... For Now [View article]
    David, almost all of the names in this industry have been selling off, including the much more attractive ones such as Continental Resources, EOG, etc.

    I'm not a big SD fan, mainly because they have pinned their fate to an extremely marginal resource base. That said, fair is fair. A receding tide lowers all boats or something like that.

    Other than that quibble, I agree with your central thesis. Why would you consider SD when EOG is hitting it wwwaaayyy out of the park?
    Nov 21 08:25 AM | 2 Likes Like |Link to Comment
  • Nucor And International Paper: Early Materials Sector Prime Picks [View article]
    Ray: You may be onto something here. Hot rolled steel prices just put in a double bottom, it appears, and last week's bar on the steel price chart is at the cusp of a breakout.

    I agree that Nucor is the pick of the litter, with the possible exception of Steel Dynamics, at least from the standpoint of fundamental financial perspectives.

    That said, I hold a personal belief that steel manufacturers are less of an equity play, and more of a proxy for the underlying commodity (hot rolled steel sheet). That said, I tend to look at the overall hot roll price chart available from the CME and others. Also, I ratio the stock price to the hot roll price looking for ratio mismatches. This makes sense if you think of a steel equity as an "annuity" of steel sales.

    Thanks for the article, I always appreciate your comments.
    Oct 7 09:31 AM | 2 Likes Like |Link to Comment
  • Cliffs Natural Resources And The Future Of U.S. Iron Ore [View article]
    Other comments correctly assess issues of transport, Fe content, and moisture. Let me add one more. Most of the mines operated by CLF are in partnerships with X, MT. In other words, the integrated mills are tied to CLF, can't substitute Brazilian ore except at the margin. And N. American mills are busy now. True, the Australian holdings are a drag on the company, and the revenue will be challenged. BUT - we are at a 5 year low, and the author did close his short... Watch what they do, not what they say...
    Mar 22 12:01 PM | 1 Like Like |Link to Comment
  • Is ArcelorMittal's Stake Sale In Canadian Mine Part Of Its Bigger Plan? [View article]
    TwistTie: Agree with you, and I'm a former MT employee! Pretty well managed, competent employees, for the most part, but the steel biz is just a structurally impossible industry. The only reason to own any steelco is as a proxy for the underlying commodity (hot rolled steel). So it's a trade,not a core holding.
    Mar 20 03:54 PM | Likes Like |Link to Comment
  • Is ArcelorMittal's Stake Sale In Canadian Mine Part Of Its Bigger Plan? [View article]
    Interesting to look at the entities buying the MT asset. China and Korean, seeking, perhaps, to recycle USD assets? Or invest away from Asian currencies? China, Inc. has bought a lot of hard assets in N. America...oil and gas properties have been a favorite target.

    Deal makes sense for MT given the a) their debt load, b) poor prospects in W. Europe, c) their desire to own the Thyssen asset in Alabama, and d) the miserable state of the ore industry. CLF has a $20 handle today, for pete's sake!

    If I were looking to own Fe ore reserves in the ground, I'd just go buy it where it's cheapest/transparently valued/most liquid...CLF.
    Mar 20 12:05 PM | 1 Like Like |Link to Comment
  • Why Batteries Are Too Valuable To Waste On Solar Power Integration And Electric Cars [View article]
    Two Comments:

    1) As an engineer, I'm embarrassed that a lawyer has to do an energy balance for the rest of us. Good job John!

    2) I agree with your general theme that use of batteries in ev's, load balancers on the grid, etc. is an exercise in economic silliness, I 'll just point out that many electricity consumers are not:

    a) fully rational in their energy economic choices
    b) fully rational in their purchase of other consumer goods.

    People buy Cadillacs, Suburus, etc. All are functional, but meet different consumer needs. EV's are no different. Not low cost, certainly, but they do provide a tangible badge for those that desire to be "greener than thou".

    Don't get me wrong. Nothing wrong with green. We should do it. But as John points out, it is not happening here when you take a hard look at the #'s.
    Mar 11 03:18 PM | 7 Likes Like |Link to Comment
  • SandRidge's (SD) board responds to related-party allegations (I, II): "The Board has reviewed issues related to these allegations several times over the company's history and has found no wrongdoing to have taken place... The company maintains and enforces a written policy that requires material related-party transactions to be reviewed and approved by disinterested members of the Board." [View news story]
    Response clearly drafted by an attorney. This board should worry.
    Jan 25 02:12 PM | Likes Like |Link to Comment
  • ArcelorMittal: Problems In Europe And Regaining Investment Grade Status [View article]
    Jeffery: I like the steel biz too - worked for ArcelorMittal and its predecessors for 20 years. IMHO, the steel equities are really just proxies for the underlying commodity - hot band. They are a trading vehicle, nothing more. Ore producers have figured out how to suck all the profits out of this value chain - and they do. LNM sees that as well - he didn't abandon backward integration 'cuz he wanted to - he had to raise the cash, as you've noted above. I agree with your focus on developing world - steel consumption per capita crests and declines as countries advance in their per capita income. The U.S. is clearly lower in its steel consumption per capita than many developing nations.
    Jan 23 11:06 AM | 1 Like Like |Link to Comment
  • ArcelorMittal: Problems In Europe And Regaining Investment Grade Status [View article]
    Good article Jeffery. And it captures the continuing curse of the steel industry: Unprofitable capacity never goes away. Governments keep irrational competitors in the market, wrecking the opportunity for all companies in this space. Should LNM succeed in his quest for the U.S. Thyssen assets, my guess is that he'd slash the old, depreciated hot mill and finishing assets of other A-M USA operations. LNM is one of the few rational men in adrift in an industry of irrationality.
    Jan 22 09:55 AM | 1 Like Like |Link to Comment
  • Going All-In On SandRidge Energy [View article]
    Answer me these questions three:

    1) Can Ward be dislodged? Enterprise value is binary on this point. He still (apparently) has the support of the Prem Watsa, the "Buffet of Canada". Who else?

    2) Is the Mississippian an economic play? Most/all of it? SD's management has a huge credibility problem. Can anything they say be believed? See SD article posted on SA "What Happened to the Economics of Sandridge's Mississippian Wells?" A pretty good deep dive on the company's primary asset. The author went back back and plotted the production curves, compared them to SD's publicly claimed economics, came to a 'NO' answer. In fairness, another analysis by Braden Holt, also posted on SA, was a bit more positive. Mr. Holt still professes skepticism on the economics of the entire play.

    3) Presuming Ward, et al are kicked out, does the ugliness stop there? It would seem that the Board of SD would have a fiduciary responsibility to go after the WC Trust, and perhaps other assets of the Ward family. That will be a distraction.

    The whole problem here is that the investment is an up/down bet on the exit of the current management team. Why do that when there's so many other transparently managed O&G firms that have great economics and upside? Then, you can look at the stuff you are supposed to look at, like cashflow, growth opportunities, multiples.

    It's just a darn shame. A founder with this kind of smarts and drive, so blatantly engaged in self dealing; treating the shareholders like marks waiting to be fleeced. And the market discounts accordingly. SD could be a good deal for everybody, and probably a better deal for the Ward family. It makes you wonder what's going thru his head.
    Jan 7 10:42 AM | 9 Likes Like |Link to Comment
  • A Tale Of 2 Companies - Consolidation In The Global Steel Industry [View article]
    Jeffery: As a former steel industry executive and as someone whose company sells into the steel industry, I read your article with interest. I will gently point out that there may be a logical point in your article that requires some revision of your work.

    You are correct about overcapacity. That is a simple math exercise. And you are correct that, under normal circumstances, the capacity would be winnowed, leaving the better mills/management holding the remaining capacity.

    BUT - As you have stated: "The fractured state of the global steel industry is due to the industry's historic role as a primary engine of a country's economic development." This historic role (development) usually means that state sponsored capacity can and does operate below full absorbed cost. For years on end.

    Nucor is hardly the first to suggest consolidation. Lakshmi Mittal (ArcelorMittal) has preached this for years; was the central force in industry consolidation for most of the period 2000-present.

    Now faced with uneconomic capacity in France, Mr. Mittal had his head handed to him by the French govt. for having the temerity to suggest that +/- 600 uneconomic jobs should be eliminated. Threats of nationalization over 600 jobs?!?

    So, I guess I'm saying that I am not sanguine that this consolidation will come without years of subsidization by national governments. My view is that overcapacity will persist.

    Steel, Energy, and Airlines are the playthings of misguided governments seeking to "develop" their economy with state sponsored investment.

    I'd argue an alternative future: The steel biz will continue to be the profitless zombie industry it has been since the 1970's.

    And what a shame. Nucor, Steel Dynamics, and the mills along the lakefront in NW Indiana are among the leaders in the industry for competitive cost structures. In a fully rational market, they'd have no problem. With France, China, et al operating capacity to export unemployment, I'm not so sure anymore.
    Dec 3 06:14 PM | Likes Like |Link to Comment
  • The French government says it has found an industrialist willing to invest €400M to renovate ArcelorMittal's (MT) Florange steelworks in eastern France. Raising pressure on MT to agree to a sale, the industry Minister says the interested party is a private steel industry investor who wants to inject money into the site with financial backing from the state. MT +1.2% premarket. [View news story]
    Let us not forget history: Arcelor was the amalgamation of 3 money losing national steel companies, the resultant entity was at the public trough of all three countries (Spain, France, Belgium) in direct and indirect ways. Corporate welfare is a multigenerational activity in Europe, I guess.
    Nov 29 09:03 AM | 1 Like Like |Link to Comment
  • The steel industry is suffering from chronic over capacity, with production ability of 1.8B tons but expected 2012 orders of just 1.5B tons. And instead of cutting back, the sector is building more mills, often supported by governments. Major problems include the fragmentation in the industry and the political difficulties of closing plants - witness ArcelorMittal's (MT) travails in eastern France. [View news story]
    "Chronic overcapacity....[irrat... Government Support"? Thus it always has been in this industry. Perhaps a better way to think of it: Some players (ArcelorMittal, et al) are in it for the $. Others (Hollande, China) are in it to create jobs, or rather, to export their unemployment.

    Lakshmi Mittal got his start buying govt. owned/subsidized steel mills when their government sponsors got tired of the endless drain on the national treasury. Sure, Mr. Mittal (who I admire greatly) gave these assets the tough love they needed to make Revenues > Costs. That's what owners do!

    France should consider:

    1) The company predecessors of Arcelor were wards of their governments (France, Spain, Belgium). For Hollande to step in at this point and threaten nationalization ignores a sad and recent history in the FRENCH steel industry.

    2) If anybody can make a steel mill profitable, it's Mr. Mittal. His "street cred" on this point is legendary. Should France succeed in wresting control of this plant from ArcelorMittal, it almost guarantees an ongoing drain on the FRENCH treasury.

    So jev - I agree with your "defragmente" comment. Mr. Mittal does as well, and has said so in the press many times. But it will not work with Hollande & his sychophants roaming the earth unfettered by a moral code and clear business purpose.

    This is a very black mark on the history of French commerce.
    Nov 28 01:17 PM | Likes Like |Link to Comment
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